What is a Tip income phase-out?
A tip income phase-out is the graduated reduction mechanism that decreases the tax-free tips deduction available under the One Big Beautiful Bill Act for higher-income service workers. The phase-out begins at an adjusted gross income of $150,000 for single filers and $300,000 for married couples filing jointly, reducing the maximum deduction of $25,000 by $100 for every $1,000 earned above these thresholds. The complete phase-out occurs at $400,000 for single filers and $550,000 for joint filers, ensuring that benefits primarily reach working-class service professionals. Strategic Traditional 401k contributions can reduce adjusted gross income to preserve tip deduction eligibility while building retirement savings.
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